In an article in the Sunday Telegraph today, 30 January, 2011, Janet Daly argues passionately against public spending, as the root of the present economic crisis.
She writes: ‘George Osborne stated quite explicitly that he was a wholehearted believer in true wealth creation – that is, the kind that comes from the private sector – and that this could be the only basis for a “new model of sustainable growth”.
“So where does that leave Mr Cameron’s pet projects and their make-work jobs? For this is … the question that dare not speak its name. It is the reason why even those politicians who are convinced that public spending can never create new wealth, and therefore never produce real growth, are afraid to say so: this is … (about) the commonplace understanding of the moral role of government. That is, that government spending is inherently virtuous, benevolent and conducive to the general good, whereas private spending is inevitably selfish, wicked and “unfair”. ‘
Well, yes, Janet – you’re right. What needs to be answered is “the question that dare not speak its name” … but you’ve picked the wrong question!
First things first.
The question that is being studiously ignored, as the real economy is shredded, is not “the commonplace understanding of the moral role of government”. It is the commonplace understanding of the role of banks: that is, the orthodox economic dogma that the creation of debt-ridden, compound interest-bearing money “out of nothing, by banks’ often foolish lending” (quote from Martin Wolf, Chief Economics Commentator at the Financial Times) is inherently virtuous, benevolent and conducive to the general good, whereas a national currency created by public authority, without any debt at source, must inevitably lead to disaster.
Leaving aside the traditional acceptability of publicly-created notes and coins (around 50% of our currency in the immediate post-war years, now less than 3%), which are produced without incurring an equal quantity of debt and sold to the banks at a small profit to the nation, there are numerous examples of societies which flourished while using publicly-created fiat money (republican Rome, for instance; or the American colonists, whose economy flourished until their colonial scrip was outlawed and a gold standard imposed by England, provoking revolution).
Even if it’s considered acceptable to pauperise increasing numbers of the population, under the present financial system there is no possible way of cutting the deficit in the long term, let alone of repaying a national debt which is currently costing each UK taxpayer £700 a year. How can you repay debt without seriously depleting the money supply, when 97% of our means of exchange (ALL non-cash money) MUST come into existence in the form of exponentially increasing, compound interest-bearing loans to government, business or private citizens?
The mass indebtedness that we are experiencing at national, commercial and personal level is not the casual debt of profligacy. It is systemic.
The really big argument that must be settled before all others, then, is not whether or not publicly-funded projects are inimical to national enterprise and prosperity. It’s who should issue our national currency, and control the quantity of money in circulation.
A simple updating of the Bank Charter Act of 1844 would satisfy the original intention of the Peel government and rid the economy of systemic debt by fully nationalising the money supply (no need to nationalise the banks). New, publicly-created money could then be spent into circulation on the creation of real wealth – which, incidentally, is not money, as you seem to believe, Janet, but all those goods and services necessary, first, for human survival and, secondly, for human comfort and enjoyment.
It is nonsense to say that wealth creation can only come from the private sector. A railway built from public money is just as much an asset as one built by private money. If the price of construction is met by publicly-created, debt-free money, in fact, it is a far greater asset, since future generations will not be burdened with repaying, at exponentially increasing compound interest, the cost of building it.
You say that “public spending can produce nothing except an artificial bubble” .
Come, come, Janet! Bubbles are not the prerogative of public spending! The dot-com bubble, for instance, and the property bubble, were not the result of public spending. They were the result of “banks’ often foolish lending”, as financiers created billions in brand new money to meet the price of absurdly over-valued assets.
Yes, huge amounts of public money are wasted – but that does not mean that public spending is inherently evil, and the decisions of private businesses inherently good, as the banks’ recent preference for speculation and asset-price inflation over productive investment makes clear.
The cut-or-spend dichotomy is a red herring. The priority for this and every other nation is to tackle the real “question that dare not speak its name” and establish a stable, debt-free money supply. Only then will it be possible to bring taxes down to a reasonable level while investing (yes, Janet, investing) in infrastructure and essential public services … and even, gradually, paying off the national debt.